This white paper will tackle the challenges that come with adopting smarter operations, while also outlining some early steps to get started. Why Industrial Manufacturers Can’t Afford Not To Invest In Big Data Industry 4.0 2 Industry 4.0: The Investment In Big Data Introduction The advent of the Fourth Industrial Revolution (also known as Industry 4.0) brought with it the next phase in the digitization of the manufacturing sector. However, many industrial manufacturers found themselves unprepared for the disruption it caused to their traditional business models. Many believed Industry 4.0 to be little more than a buzzword or catch phrase; at best, it signified something that could be as opposed to a force already taking root in the globalized marketplace. The wake-up call came as industrial manufacturers began to realize the power and potential of Big Data, and that implementing data-driven solutions — or choosing not to — could dramatically improve overall agility, flexibility and remove unseen vulnerabilities. “The first hints of the power of Industry 4.0 could be seen in the increased automation of various industrial processes in fully digital factories,” says Srivats Ramaswami, the Chief Technology Officer at 42Q1 . “The factories were implemented by companies who integrated software platforms that link all aspects of manufacturing, from initial product design to factory layout and manufacturing process optimization to customer feedback after delivery. This integration ties together each aspect of the manufacturing process.” Perhaps even more appealing than seamless operations was the opportunity to cut costs. For instance, a 2015 study from the McKinsey Global Institute2 found that manufacturers could see a 25 percent reduction in maintenance costs and a 50 percent reduction in unplanned outages by using Internet of Things (IoT) enabled machines to monitor performance. The Four Manufacturing Revolutions 1970s 1990s 2000s present The lean revolution takes a firm hold. The rise of automation greets the new millennium. Industry 4.0 shockwaves drive the marketplace to invest in smarter operations. Outsourcing begins to surge throughout the industry. — Jack Levis, Senior Director of UPS Process Management “ Whether you’re a small or large company, leveraging the data you already have into meaningful insights puts you that much further ahead of the game.” 3 Industry 4.0: The Investment In Big Data Although a source of business disruption, the emergence of Industry 4.0 and the onset of technological advancements offers manufacturers the opportunity to rethink their long-term operational strategies. To remain relevant and competitive, industrial manufacturers must consider investing in and implementing smarter, data-driven solutions to keep their enterprises agile and efficient. What’s At Stake For Manufacturers To respond strategically, industrial manufacturers should first have a clear idea of what is at stake. “The key theme of Industry 4.0 is a shift from mass production to mass customization,” says Manu Tayal, a General Manager at Happiest Minds Technologies 3. “The goal is that customers will have better experience with customization and products will turn into platform.” Ramaswami4, on the other hand, refers to Industry 4.0 as “as the interaction of the real and virtual worlds.” “Powered by the convergence of low-cost storage, ubiquitous sensors, powerful artificial intelligence and analytics, the effect on the manufacturing industry is huge,” he says. “These software systems do more than trade data. They eliminate much of the human intervention that goes with managing them. This next generation of automation, utilizing big data, analytics and artificial intelligence, is one of the most important drivers behind digital manufacturing and Industry 4.0.” But, although critically important, the seamless connectivity and automation now possible by integrating smarter operations is what industrial manufacturers simultaneously find both enticing and intimidating. What’s Holding Manufacturers Back “For many manufacturers, change equals risk,” says Ramaswami. “Disrupting their supply chain or factory lines can cost millions, with untold damage to a brand and a company’s reputation. Given this, many are understandably reluctant to embrace far-reaching changes to industrial infrastructures and processes.” Indeed, evidence of this reluctance to evolve and invest in smarter operations is abundant. For example, a recent survey of over 300 global manufacturing executives5 identified gaps between where manufacturers know they need to be and what actions they are taking now. For instance, 95 percent of respondents said they “expect more processes with suppliers to be automated” within five years, however a mere five percent said they were “very satisfied” with their progress. The survey also found that only 23 percent of respondents currently analyze and use data from their extended supply chains for decision making, but that they expect that number to jump to 68 percent in five years. Additionally, Deloitte’s 2016 Business Confidence Report6 also revealed inconsistencies among C-suite leaders when it comes to prioritizing and investing in innovation. The study found that the strategy most C-suite executives are implementing centered on the same, traditional business investments they had made for years, rather than those directly leading to innovation. ...the seamless connectivity and automation now possible is what industrial manufacturers simultaneously find both enticing and intimidating. 4 Industry 4.0: The Investment In Big Data Research conducted by UPS and IDC and published in the 2016 “The Rise of Smart Operations: Reaching New Levels of Operational Excellence” report7 also noted the “relative immaturity” of companies “in their efforts to transform their operating models.” Furthermore, according to the report, “The [study’s] results indicate that the gap is widening between the companies that are aggressively embracing smart operations principles and those that are falling further behind.” This gap in acknowledging the new possibilities offered by smarter, data-driven operations coupled with a reluctance to invest leaves industrial manufacturers vulnerable to outside competition. Moreover, if manufacturers are both slow to respond and uncertain of how to respond, they also risk their supply chain becoming antiquated. Sean Riley, the global industry director of Software AG’s supply chain and logistics, agrees. “The traditional manufacturers still have a wait-and-see approach, which will unfortunately leave an opening for the more inventive companies to grab market share,” Riley says8. “It’s my belief that every manufacturer is going to be IoT-enabled in some way, shape or form within three to five years, simply because of the competitive differentiation that IoT as part of a larger architecture provides.” Start by Creating a Data-Driven Strategy For industrial manufacturers looking to take control of their supply chains, the good news is that, according to Ramaswami, “there are no hard and fast rules to Industry 4.0.9” Even better, there is a lot of help to be found along the path toward digital adoption and integration. But first, and perhaps most importantly, companies must articulate a strategy for transforming their current model to achieve the level of operational performance needed to remain competitive and drive business growth. Senior Director of UPS Process Management Jack Levis says that the first step is getting your company’s data in order. “Understand the data you use to run your business, and gather all the data that you can and start analyzing it,” Levis says. “Whether you’re a small or large company, leveraging the data you already have into meaningful insights puts you that much further ahead of the game.” “Take a look at the status quo, examine the deficiencies that you’ve come to accept day to day and use these as drivers for change,” Riley says. “You need to focus on what falls in with your current strategy right away, with the understanding of where you want to be in three to five years as a company.” Build Flexibility Into Your Implementation Plan “After a company has determined an objective, they need to plan out how to make that happen, which can be ridiculously complex,” Riley says. “The plan needs to include ways to be scalable and flexible, as well as determine the amount of data captured and analyzed. Manufacturers should also take a long hard look at how to inherently build-in flexibility from the get-go.” —“The Rise of Smart Operations” “... the gap is widening between the companies that are aggressively embracing smart operations principles and those that are falling further behind.” 5 Industry 4.0: The Investment In Big Data According to Riley, this process can take years depending on a company’s specific plan and desired outcomes — which is why he also emphasized the critical role that external service providers or transportation-provider’s play in the adoption process. “When you have an outsourced service arm, you can offer new opportunities to customers and gain another level of control,” Riley says. “All told, it’s really a structural change in how that manufacturer is going to do business.” Levis also suggests that manufacturers should address their fundamental needs early on to better prepare themselves. “It would be unusual for midsize companies to already have on staff all the expertise they will need to manage and make sense of their data,” Levis says. “Outside expertise can be invaluable for basic steps such as auditing the data sources you have, and how to access and store that data.” Take These Steps Now for an Immediate Impact Although adopting smarter operations is a long-term process, there are immediate solutions manufacturers can utilize today that can help manufacturers gain more operational visibility to boost efficiency, security and flexibility. Third party services offer the advantage of providing both immediate and experienced support for manufacturers looking to transform their existing operations model. For example, manufacturers looking to increase efficiency and reduce the risk of error should look into the benefits of automated shipping. High-value and time-critical shipments can expose manufacturers to risks and, potentially, lead to a poor experience with a valued customer. However, with solutions like UPS Worldship® for high-volume shipping and multiple modes, manufacturers can track every shipment to provide timely delivery, compliance and reduce the probability of costly errors or losses. This system reduces labor, expense and time — a key service that could strategically affect a manufacturer’s business process and give them that real sense of control that might be missing. Boost Visibility with Advanced Tracking Within “The Rise of Smart Ops,” the authors note that “companies that are less aggressive in their smart operations to date could look to take advantage of the technology and process scale investments transportation providers have made in an effort to close gaps more quickly.” For industrial manufacturers, one such gap is inventory visibility while in transit; increased visibility across shipments not only enables manufacturers to be more proactive and meet hard deadlines, but it also helps them better manage whether they have too much or little inventory at any given time. With UPS Quantum View® technology, for instance, manufacturers can maintain “virtually real time” visibility that is multi-modal and not limited to small packages. This service means that suppliers can quickly relay any critical shipment changes to customers. “ Third party services offer the advantage of providing both immediate and experienced support for manufacturers looking to transform their existing operations model.” 6 Industry 4.0: The Investment In Big Data Prioritize the Customer Experience by Mitigating Risk For manufacturers anywhere along their path toward adoption, it is important to understand that data and increased visibility inherent to smarter operations can also enhance risk management — an area of focus which includes financial and insurance services. By investing in a transportation provider, this means working to resolve potential shipping issues before they happen. UPS Proactive Response® service, for instance, is a sophisticated monitoring engine that continuously observes critical shipments. If either the monitoring engine or a logistics expert identifies an impending risk, then UPS initiates service recovery procedures tailored to that specific customer. This helps not only diminish potential risks in shipping but also works to improve the overall customer experience. Don’t Risk Being Left Behind For decades, manufacturers were in the business of order fulfillment10 — one driven mainly by in-person relationships and a strong handshake. For small to midsize manufacturers, this new digital reality is a fundamental change to how they do business. Now, manufacturers must also be service providers, which means asking how they can add value to their customers and throughout their entire supply chain. To adapt to this new reality, industrial manufacturers must address and remove operational vulnerabilities if they are to sustain long- term business growth and remain relevant within the industry. And the decision to adopt data-driven, high-tech operations in the wake of Industry 4.0 is no small feat — nor is it a simple one. However, industrial manufacturers can’t afford not to invest in a Big Data solution. Despite any feelings of reluctance or uncertainty, manufacturers must rethink their long-term strategies if they are to remain relevant, profitable and meet the ever-evolving expectations of their customer base. And by investing in a logistics provider, such as UPS, industrial manufacturers can begin to immediately reinvigorate their operations regardless of whatever stage they’re at in the integration and adoption process. Visit ups.com/manufacturing to learn more. UPS is a global leader in logistics, offering a broad range of solutions including transporting packages and freight; facilitating international trade, and deploying advanced technology to more efficiently manage the world of business. Headquartered in Atlanta, UPS serves more than 220 countries and territories worldwide. To learn how UPS helps industrial manufacturing and distribution companies, visit ups.com/manufacturing. The information in this report was researched and produced by Manufacturing.net in conjunction with UPS. Statistical data was researched and compiled by Advantage Business Media in March 2017. About UPS About This Report Sources 1 “ The Coming Game-Changer In Manufacturing Technology: Industry 4.0,” Manufacturing Business Technology, September 2016. 2 “ The Internet of Things: Mapping the Value Behind the Hype,” McKinsey Global Institute, June 2015. 3 “Industry 4.0 And IoT,” Manufacturing.net, February 2017. 4 “ The Coming Game-Changer In Manufacturing Technology: Industry 4.0,” Manufacturing Business Technology, September 2016. 5 “ The Current and Future State of Digital Supply Chain Transformation”, April 2016. 6 “ The Deloitte Business Confidence Report 2016,” Deloitte, May 2016. 7 “ The Rise of Smart Operations: Reaching New Levels of Operational Excellence,” UPS & IDC, August 2016. 8 “ Crucial Concerns And Steps In IoT Adoption: Q&A with Software AG’s Sean Riley,” Manufacturing.net, March 2016. 9 “ The Coming Game-Changer In Manufacturing Technology: Industry 4.0,” Manufacturing Business Technology, September 2016. 10 “ What’s Holding US Manufacturing Back?” Global Manufacturing, April 2017.